Townsville Mayor Jenny Hill is rightly critical of the Prime Minister’s proposed special economic zone in the Northern Territory, in which a lower rate of company tax would apply. As reported in the Townsville Bulletin this morning (Economic zone plan to favour Darwin):

A PLAN by Prime Minister Kevin Rudd to create a special economic zone in the Northern Territory has drawn criticism from Townsville Mayor Jenny Hill, who said the policy could hurt North Queensland.

“The problem is it creates one area of preferred growth in Australia,” she said.

“It has the potential to suck businesses out of North Queensland,” said Cr Hill.

The idea of special economic zones comes up from time to time. One of the most recent proposals came from the Institute of Public Affairs, which would have included parts of North Queensland in the zone. I have previously commented on this plan (Government right in rejecting northern economic zone), and I still think governments are better off lowering tax rates across the whole of Australia rather than carving out special economic zones. Creating these zones is likely to lead to a large amount of tax avoidance with little public benefit, as identified by John Quiggin in his commentary on the NT plan yesterday, reported by ABC News:

University of Queensland economics professor John Quiggin agrees, and says tax havens often do not generate much broader economic benefit for an area.

“This is one of the dangers – Ireland is essentially a tax haven, not much productive activity has actually taken place in Ireland,” he said.

“You’ve got companies like Apple Computer working their profit through Ireland, but actually not doing very much in the way of production there.

Given the huge risks, I don’t expect we’ll see a special economic zone in the NT or anywhere else in Australia in the foreseeable future.